Posted on 01/05/2003 4:36:38 PM PST by koax
MONEY MAKEOVER Couple find success in hard work and a rare saving grace
By Ann Perry PERSONAL FINANCE COLUMNIST
January 5, 2003
By any measure, James and Judy Ruvalcaba are an American success story.
He came to this country from Mexico, working at age 6 in the fields of the Central Valley. She was the daughter of Puerto Rican immigrants.
Today James is a Marine Corps major, overseeing maintenance on a fleet of Cobra attack helicopters, and Judy is a registered nurse at Tri-City Hospital and an associate faculty member at Mira Costa College. Their annual income exceeds $150,000.
What's truly remarkable about this couple, both 38, is their dedication to saving. Just consider their net worth – three-quarters of a million dollars, produced solely from their own saving and investing.
With such exemplary finances, why did they volunteer for a Money Makeover?
Being such go-getters, they wanted to see if they could do even better. And then there's that nagging matter of their stock market investments, worth $365,000 at the height of market, but only $235,000 today.
The Money Makeovers are sponsored by The San Diego Union-Tribune and the San Diego chapter of the Financial Planning Association. In exchange for sharing their experience in the newspaper, the Ruvalcabas received free financial advice from Brandon Thorsten, CFP, of Merrithew & Thorsten in Scripps Ranch.
Thorsten praised the Ruvalcabas for their ability to save at least 25 percent of their earnings, a rate higher than he's ever seen. "We're happy if our clients save 10 percent of their income," he says.
He credited them with starting early, working and saving hard, while spending little, especially on cars and clothes.
James says that being the youngest of 11 children from Guadalajara, Mexico, was the basis for his work ethic and the "foundation for trying to make a dollar go a long way."
Somewhere along the way, he says he learned that if you saved early enough in life, that by the time you reached your 40s you could amass $1 million. So he's been giving it a try ever since.
James earned his bachelor's degree from the University of Southern California. Although he had several scholarships, he also worked part time. As a result, he graduated with a $15,000 surplus.
From there James went to Marine flight training in Florida and wherever he was assigned.
Along the way, he and Judy, who married in 1989, made some savvy real estate decisions. In 1990, they purchased a condominium in Pensacola for $43,000 and decided to keep it and rent it out after they left. It's now worth $80,000 and has just $9,000 debt.
In 1992, the couple paid $200,000 for a house in Oceanside that until recently had been their home. Now worth $420,000, it too is a rental, with $100,000 debt.
Six months ago James and Judy bought a $445,000 condominium near the Oceanside pier where they now live.
To save and invest as they have takes dedication.
James says they save at least $3,700 a month, or $44,400 a year. "As much as we can," he says. "I realize these are our wealth-building years."
He admits he can be fanatical about saving. Does it ever get to Judy?
"Not a whole lot," she says. "I was a saver, but not as aggressive as James is. He's constantly thinking and managing."
They don't buy on impulse, they shop at the commissary and look for sales. They save a lot of money by driving and maintaining older cars, she a 1986 Volvo and he a 1991 Honda. "I eventually want a Mercedes," says James. "I can afford one now." But it's not part of the plan at this point.
Judy says they don't deprive themselves, however, and enjoy going to the movies and taking trips to Hawaii.
James manages not only the family budget, but the long-term investments as well. He chooses the mutual funds for the couple's retirement accounts and taxable accounts, worth about $235,000, down from $365,000 in 2000.
Like many Americans, James invested heavily in growth stocks in the late 1990s. He has stuck with his picks and thinks they will come back.
Thorsten praised James for doing an outstanding job, but noted that "his entire portfolio was an end of the '90s portfolio."
Many of the mutual funds hold the same large-company growth stocks, making the Ruvalcabas' portfolio highly undiversified, says Thorsten. Using a computer program, he was able to demonstrate that numerous stocks appeared repeatedly. For example, Microsoft was represented in 12 of the mutual funds, Intel in nine and Cisco Systems in 12.
"By owning all these different funds, he does not have the diversification he thinks he has," Thorsten says. "That is very common with do-it-yourself investors."
He would like the Ruvalcabas to diversify their investments into different kinds of stocks, such as small and mid-sized company stocks, value stocks, international stocks, and also bonds. This, he believes, would increase their returns and also lower their risks.
Thorsten knew this would be a tough sell for James, who has never divested any of his holdings. In fact, Thorsten says he was torn between recommending a portfolio that James would be likely to accept or the portfolio that he thought was the best. He chose the latter.
James agrees that his portfolio is not well balanced, and he would consider small cap and international stocks. But he doesn't see any need to invest in bonds now, because he doesn't plan to tap the investments until he's age 57 or older. He figures he can handle the volatility of stocks for now, and he would like to invest more in stocks while the market is down.
Thorsten points out that bonds should be included because they might be the best investment tools for the next few years, just as stocks were during the 1990s.
He says that while some diversification is better than none, the outcome is unlikely to be satisfactory if the financial planner and the client can't agree on an investment approach.
In his experience, says Thorsten, "The client portfolios that do the worst are ones where clients keep some control. It becomes a competition. And we're working to defeat each other."
For now, the Ruvalcabas and Thorsten are at an impasse on what to do about the investments, with Thorsten believing that his recommended portfolio should be taken as a whole and not in pieces and James acknowledging that he's a bit of a control freak who's not ready to hand over the reins.
Thorsten's other recommendations:
Set up an A/B trust and other estate planning strategies to minimize estate taxes. Thorsten estimated that without such strategies, their estate of about $1.8 million would lose $433,000 to taxes and settlement costs. James and Judy say that implementing these suggestions is their top priority.
Use tax-favored college savings 529 plans to save for college.
James, who is eligible to retire from the Marine Corps in four years, expects to do so in five to seven years. Then he would like to attend law school at either USC or the University of San Diego, with the ultimate goal of running for Congress. He estimates the cost at $75,000.
Giving the Ruvalcabas' assets and their regular savings, Thorsten notes that they have enough to meet this goal. He recommends moving a lump sum of money into a 529 plan for the tax benefits.
The couple would also like to provide enough money for their daughter Jillian to attend a state college. Thorsten estimated the cost at $24,000 in today's dollars, or $55,000 starting in the year 2016.
To meet that goal, he recommended setting aside a lump sum of $16,700 or a monthly contribution of $143 earning 8 percent in a 529 plan.
Add an umbrella insurance policy to protect against liability lawsuits. James and Judy immediately realized the value of such insurance. "The more assets you have, the more they can come after you," says James.
"Continue doing what you're doing," Thorsten advises lastly, "and remember that your financial situation allows you to stop and enjoy yourselves every once and awhile!"
The couple say they are grateful for the makeover. "It was great," says James. "I never expected it to be so comprehensive."
Ann Perry can be reached at moneyperry@aol com.
Copyright 2003 Union-Tribune Publishing Co.
This is outrageous and cannot be allowed to stand. All you see is people robustly opposing illegal immigration and special treatment by the government for new immigrants. That's it.
i don't even know who you are!
Can you please post a series of links to threads that indicate a general trend of attacks on immigrants that are not focused on the topic of illegals or preferential treatment by the government?
If you do not do so in you next post, that can only be interpreted as indicating that your claims are completely baseless and without merit.
I'm waiting...
bye.
From your page here at FR :
"this forum seems to have degenerated into "kill arabs, homos, abortionists, and mexicans" . this isn't conservatism but reactionary. much of the stupidness encountered daily on this forum could be corrected simply by reading an economics book."
I FEEL attacked! The seriousness of my charge should be all that is needed! Did I mention that I got a lot of ribbons pinned onto my shirt?
Now, who gave you permission to respond to the article that you posted? Heads will roll!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.